German leader Olaf Scholz walks a fine line in China

German Chancellor Olaf Scholz sought to strike a delicate balance during a trip to China this week, promoting business ties with his country's biggest trading partner and raising concerns about rising exports to Europe and its support to Russia.

Scholz met China's top leader, Xi Jinping, at the Diaoyutai State Guesthouse in Beijing on Tuesday, the culmination of a three-day visit with a delegation of German officials and business leaders. He also met with Premier Li Qiang as the two countries navigate strained relations over Russia's war in Ukraine and China's rivalry with the United States, Germany's most important ally.

During his trip Scholz promoted the interests of German companies that are finding it increasingly difficult to compete in China. And he expressed growing concern in the European Union that the region's market is becoming a dumping ground for Chinese goods produced at a loss.

But Scholz chose a conciliatory rather than combative tone in his opening speech before meeting Xi on Tuesday morning, in a meeting that lasted more than three hours and turned into a walk and lunch.

It was the German leader's first visit to China since his government adopted a strategy last year that defined the Asian power as a “partner, competitor and systemic rival”, calling on Germany to reduce its dependence on goods Chinese.

The German economy shrank last year, and its weaknesses have highlighted its dependence on China for growth. Energy prices have risen due to the war in Ukraine, facilitated by Beijing's support for the Kremlin. German companies have pushed for greater access to China and complained they face unfair competition.

The chancellor visited German companies with large investments in China and met representatives and trade officials in the sprawling industrial metropolis of Chongqing in southwest China, Shanghai and Beijing.

Speaking to a group of students in Shanghai on Monday, Mr. Scholz responded to a question from a student who planned to study in Germany this year, who said he was “really worried” because the country has partially legalized cannabis. “When you study in Berlin, you can run around all the time and never meet anyone who does,” the chancellor assured him.

But he also used the platform to spread more serious messages about trade. “Competition must be fair,” Scholz told the students. “We want a level playing field,” he said.

Scholz's trip was an example of the difficult dance Germany is trying to do: maintain economic ties with China while managing U.S. pressure to align more closely with Washington against Beijing.

In his meetings, Scholz stressed Germany's commitment to doing business with China, but also warned that Beijing must curb the flow of Chinese goods into Europe. At the same time, he expressed reservations about the European Union's investigation into China's use of subsidies for green technology industries, saying any discussion on trade must be based on fairness.

“This must be done from a position of confident competitiveness and not from protectionist motivations,” Scholz told reporters on Monday.

China's manufacturing push into green sectors such as electric cars and solar panels has sparked trade disputes with Europe and the United States, where such industries have also received government support. But with 5,000 German companies active in the Chinese market, Germany stands to lose more than many of its European partners would if Beijing were to retaliate against the European Union.

“If the EU were to act too harshly against China, we could expect countermeasures and that would be a catastrophe for us,” said Maximilian Butek, executive director of the German Chamber of Commerce in China.

“It is extremely important for us that the Chinese market remains open,” he said.

In his meeting with Xi, Scholz indicated that Russia's war against Ukraine and its arms buildup were high on his agenda. “They directly influence our core interests. Indirectly they harm the entire international order,” he said in the meeting's opening speech, a transcript of which was provided by Scholz's office.

Despite insisting on Xi, he does not appear to have obtained the commitment he had asked the Chinese leader to participate in an international conference for Ukraine scheduled for June. Germany hoped that China could use its influence on Russia to help reach a peace agreement.

Germany would also like China to stop selling goods to Russia that could be used on the battlefield, and Scholz told reporters he had raised the issue in his meeting. “The point has been made,” he said. “There can be no misunderstanding about how we see things.”

China hopes to drive a wedge between Europe and the United States by courting leaders like Scholz. State media reports described his visit as a demonstration of the strength of China's relations with Europe, highlighting its economic ties with Germany.

In his opening remarks to Scholz, Xi said that cooperation between China and Germany, which have the second and third largest economies, was beneficial to the world, a remark that could be read as directed at those who have urged Berlin to distance itself from Beijing.

“The two countries should view and develop bilateral relations from a strategic and long-term perspective and work together to instill greater stability and certainty in the world,” Xi told Scholz, underlining the importance of seeking “common ground.”

Beijing will certainly welcome the message that German businesses are committed to China. The Asian giant is trying to attract foreign investment to reinvigorate its economy, which has faltered due to a slowdown in the real estate sector. Some Western businesses and investors have also been rattled by Xi's emphasis on national security, which they say makes operating in the country riskier.

From China's perspective, Germany may be the best hope for delaying or easing any trade restrictions by Europe, said Noah Barkin, senior advisor for the China practice at the Rhodium Group, a research firm.

German automakers have invested billions of dollars in China and much of their revenue comes from there. Many fear that if the European Commission imposed higher tariffs on Chinese exports and Beijing retaliated, German businesses would suffer more.

Chinese officials “know that German companies are heavily invested and use that politically to influence political decision-making in Berlin,” Barkin said.

Germany's largest companies, including BMW, Mercedes-Benz and BASF, have large operations in China and strong and effective lobbies in Berlin, Barkin added. Executives from those companies, along with many others, traveled with Mr. Scholz to China.

“The supply chain in China is full of German products,” said Joerg Wuttke, former president of the EU Chamber of Commerce in China. “If China has a price war with Germany, no one will make any more money.”

Scholz also brought with him the German ministers of agriculture, environment and transport, officials who experts say would be particularly interested in working with China.

“It sets an agenda with these three ministers, the tone is overall cooperative, these are the areas we want to work on,” said Janka Oertel, director of the Asia Program at the European Council on Foreign Relations.

Chinese officials, for their part, have rejected European accusations of unfair trade practices, calling them unfounded and an act of “typical protectionism.” They hinted that they could retaliate for any action taken by the European Union, saying China is “strongly dissatisfied and strongly opposes” its investigations.

In an interview with German newspaper Handelsblatt, Wu Ken, China's ambassador to Germany, said the competitive advantage of Chinese electric vehicles “is based on innovation, not subsidies.”

“The challenge that developed countries face lies mainly in the fact that Chinese companies are more efficient,” the ambassador said.

Viviana Wang contributed reports from Beijing and Zixu Wang From Hong Kong.

Leave a Reply

Your email address will not be published. Required fields are marked *